Grocery store brands feed on bargain hunger

As consumers are reeling from the increased costs of food, supermarkets are responding with a greater variety of private-labeled goods.

Also known as generics, grocers have started to put more emphasis on the products’ quality and branding.

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Rich Addicks/raddicks@ajc.com

Atlanta shopper Micki Slaton says she buys many Kroger-branded items. Her favorites include Kroger raisins, cheese, popcorn and canned vegetables. Kroger produces products under the Kroger and Private Selection brands.

• Compare store brand prices

WHAT'S HOT NOW
Most popular private-label items:
Kroger

• Private Selection butter pecan ice cream
• Private Selection frozen whole strawberries
• Private Selection cut bacon
• 2 percent milk
• Large eggs

Publix

• Reduced fat milk
• Eggs
• Whole milk
• White bread
• Bottled spring water

Whole Foods 365 brand

• 1 percent milk
• Black beans (canned)
• Peanut butter
• Tuna (canned)
• Shells and cheese

— Sources: Kroger, Publix, Whole Foods

FOOD PRICES:
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This is an occasional series on how rising global food prices are affecting people and businesses in metro Atlanta.

Publix, for example, has started advertising its store-brand products. And Kroger has boosted the number of products it makes under its own label, from premium ice cream to marinara sauce.

The move toward value is paying off. Kroger’s first-quarter revenue rose 11.6 percent, to $23.1 billion, over the same quarter last year, and earnings rose 14.5 percent, to $386 million. At employee-owned Publix, sales for the second quarter were $5.9 billion, up 3.5 percent from $5.7 billion during the same quarter last year.

The upscale Whole Foods, on the other hand, saw its earnings decline by 31 percent to $33.9 million, even though sales increased to $1.84 billion in the second quarter.

The story, of course, starts in everyone’s wallet. Ernst & Young found that food prices grew faster than the consumer price index for the three months ended in May. Food prices grew at 5.9 percent during that period, while the CPI grew 4.9 percent overall.

Chicago-based Patricia Novosel, global food leader for Ernst & Young, said one reason private labeling is helping both consumers and grocers is that quality is better than ever.

“We see good, better, best [in quality] driving an increased trend toward consumer acceptability,” Novosel said. “And generally, there’s more advertising around private label than we’ve seen before.”

Grocers also have higher profit margins on goods they produce, Novosel said.

In a recent survey, two Morgan Stanley analysts tested pricing at grocery stores in six cities. They found that Kroger consistently had the lowest “everyday” prices compared with competitors, including Safeway, Costco, Sam’s Club, Wal-Mart and BJ’s. They conducted the survey in Baltimore, Chicago, Dallas, Denver, Los Angeles and Fairfield, Conn. (areas where Publix doesn’t have a presence)

In the report to the investment bank’s clients, the analysts say they are seeing a “consumer trade-down” trend.

“As consumers are being pressured by both food inflation and higher gasoline and energy prices,” wrote Mark Wiltamuth and Joseph Parkhill, “we believe low prices are key to winning in this trade-down economy.”

They found Kroger’s everyday prices to be 10 percent to 12 percent below its peers in two of the three markets surveyed, and 5 percent to 7 percent below peers after including promotional prices.

Kroger’s private-label discount was 38 percent to 48 percent below national brand prices. Other grocers’ private labels were 16 percent to 35 percent lower.

One way Kroger controls the price of its private labels is by operating its own manufacturing facilities. The company owns 43 percent of the private labels it sells, vs. 22 percent for Safeway, the analysts said.

“We have over 40 manufacturing or processing centers,” said Kroger spokesman Glynn Jenkins. “We manufacture dairy, cheese and bakery items.” In metro Atlanta, for example, Kroger owns a dairy facility off Cheshire Bridge Road and an ice cream plant in Marietta.

Kroger has several brands. Private Selection is for more upscale tastes, including “two-bite brownies” and caramel swirl ice cream.

“Both are very competitively priced in the industry,” Jenkins said.

It’s not like private label is new, but consumer acceptance is growing, said Bob Goldin, an executive vice president of Chicago-based food industry research firm Technomnics.

What’s new, he said, is that quality is better. With consumers so pinched, he said, they are turning to these cheaper but comparable products.

“One retailer that stands out most notably is Trader Joe’s,” Goldin said. “Eighty percent of what they sell is their brand. And people are pretty excited about it. Whole Foods and their 365 brand is really good.”

On a recent Saturday at the Sandy Springs Whole Foods, the store’s marketing manager gave about six customers a “value tour.” The 365 brand by Whole Foods was featured throughout the tour.

Said Alice Cheung, the store’s marketing specialist who gives the tours: “Our 365 line has no partially hydrogenated oils, artificial sweeteners, artificial preservatives.”

Jerome Cardiff of Sandy Springs, who was on the tour with his wife, said “you can’t go wrong” buying generic sugar and other “commodities.” But he wasn’t impressed by the 365 brand cookies.

“I have a brand loyalty to certain things,” he said.

Said Goldin: “Consumer loyalty has tended to be toward the national brands, and lots of categories have had no success, like soft drinks and breakfast cereal.” He said that 15 percent to 18 percent of what supermarkets sell is from private labels.

At Publix, spokeswoman Brenda Reid said, “not only are we seeing a higher volume” of private-label sales but “we are also promoting it.”

She said Publix has started comparing the national with the store brands in its advertising. And each week, a “mystery” coupon can net shoppers a Publix brand product for one penny.

She said Publix, like Kroger, also owns its own dairy, ice cream, iced tea and deli manufacturing facilities.

PRICE COMPARISON

(Prices on Aug. 22, 2008)

— Sources: Kroger, 1225 Caroline St. NE, Atlanta; Publix, 1001 Ponce de Leon Ave. NE, Atlanta; Whole Foods, 650 Ponce De Leon Ave. NE, Atlanta